Wednesday 24 March 2010 12.01 EDT
First published on Wednesday 24 March 2010 12.01 EDT

Calls from the UK's video games industry for government help have finally been heeded with chancellor Alistair Darling announcing plans to introduce tax relief for game developers in the final budget before the general election.

But homeowners and businesses will have to pay a new 50p-a-month tax for every phone line they have in order to help pay for the roll-out of the next generation of superfast broadband networks.

"I will offer help to the computer games sector, similar to the steps which are helping restore the fortunes of the British film industry," Darling told MPs in his budget speech. "This is a highly successful and growing industry, with half its sales coming from exports, and we need to keep British talent in this country."

His decision marks a dramatic government U-turn for the games industry after being left out of then communications minister Lord Carter's interim Digital Britain report a year ago. In his final report, Carter suggested introducing a "cultural tax break", but in his pre-budget report last year, Darling dismissed the idea completely. The government will consult on exactly how the tax relief system will work and then introduce the scheme, subject to state aid approval from the European commission.

Shadow culture minister Ed Vaizey has previously expressed his general agreement with plans for a tax break for the games industry, so it is unlikely to be quashed in the event of a change of government.

The decision was warmly welcomed by industry figures and game developers. Richard Wilson, chief executive of the video games industry association Tiga, described it as "inspired".

"The government has chosen the future over the past, growth over decline, success over failure. Games tax relief will increase employment, investment and innovation in the UK video games sector," he said.

The games industry in the UK supports about 27,000 workers, including more than 9,000 developers, and rather than being concentrated in London, it is spread across the country with clusters of developers in the West Country, north-east England and Scotland.

Tiga reckons that over a five-year period, games tax relief should create or protect 3,550 graduate-level jobs and increase or safeguard £457m in development expenditure.

Jason Kingsley, Tiga's chairman and the chief executive of Rebellion Studios in Oxford, which has created games including Alien Vs Predator and Rogue Trooper, said that the tax relief will "enable the UK games sector to compete on a more even playing field", while Gareth Edmondson, managing director of Ubisoft Reflections in Newcastle, which created the smash-hit undercover driving game Driver, added: "This is a real triumph for UK developers. It will enable the UK games industry to remain a success story."

The tax is designed to raise about £175m a year and help the creators of new superfast broadband networks to push them out to 90% of the UK population by 2017. But it has been heavily criticised by some MPs as a tax that would hit the poor but only benefit the relatively well-off who can afford to pay for fast internet access. BT's 40Mb-per-second Infinity service, which it hopes to have within the reach of 10m homes within the next two years, starts at £31.53 a month, while Virgin Media's 50Mb service – only available to half the UK – starts at about £33.50.

BT said it will investigate the government's plan, adding that it is already investing £1.5bn to get fibre optic networks to about 40% of the population and wants "to go further". But it warned that going substantially further would require some form of public sector support, as has been seen in other countries.

"This is a historic step recognising the importance of broadband to the modern world and committing the necessary funding to ensure UK-wide rollout," said Andy Kerr, CWU deputy general secretary. "Confirming the funding today means that hundreds of thousands of people who may have been left out of the broadband revolution can now look forward to equal access to superfast connections.

"The 50p levy on households is the only credible way of ensuring that next generation rollout reaches the whole of the country, with an exemption for low-income users. The Tories, by scrapping public funding and relying on the market, would leave gaping holes in a superfast network which would create a two-tier system at the mercy of market whims."